On Friday, September 20, GFOA filed comments to the IRS on Proposed Regulations that would redefine Political Subdivisions for the purposes of tax exempt bonds. The Proposed Regulations set forth a new, three-part federal test to define political subdivisions qualified to issue tax-exempt debt. Every entity would have to meet all three tests to be considered a political subdivision. The entity must: (1) have right to exercise a substantial amount of at least one of three sovereign powers (the power of eminent domain, power of taxation and the police power); (2) serve a governmental purpose; and (3) be controlled by a state or local government. The detailed requirements applicable to these three tests under the Proposed Rules make the Proposed Regulations unworkable.
The GFOA letter explains that the Proposed Regulations would add extensive and additional federal requirements on entities established by the State to serve a purpose that is in the best interest of the State. Special districts in the U.S. encompass a wide variety of public purposes and to help fulfill their purpose, they have the ability to issue tax-exempt debt. The Proposed Regulations impact not only the ability to issue future tax-exempt bonds that would consequently weaken our country’s aging infrastructure, but also impact outstanding bonds issued by political subdivisions. The Proposed Regulations would hinder the ability of the political subdivisions to effectively, efficiently and economically serve communities. In the letter, the GFOA asks the IRS to withdraw the Proposed Regulations.
Join in to ask the Proposed Regulations on Political Subdivisions be withdrawn. Click here for a template that your entity can use to reach out. Send your letter electronically via the Federal eRulemaking portal at www.regulations.gov (REG-129067-15). Deadline to submit letters is May 23, 2016 11:59pm EST.